The letters from concerned buyers of presold, unfinished residential real estate developments in China read, “You stop construction, I stop paying my mortgage,” and “You hand over the apartment, I start paying.” The growing Chinese middle-class has invested heavily in real estate, believing it to be a safe haven for their cash and (as of 2019) representing 60% of total assets owned by urban Chinese households. With a middle class that is 700 million people strong- more than half the Chinese population– the specter of mortgage boycotts is a growing threat to the Chinese economy. In a country that stifles dissent, this is an especially big deal.
The sentiment is understandable.
Families have invested their life savings into apartment projects that have stalled across the country. Developers are dealing with soaring debt loads, along with continued “zero-covid” policies that lock down entire cities with strict digital surveillance, mass testing, extensive quarantines and snap lockdowns. At least 74 cities across China, home to more than 300 million residents and representing 35% of the Chinese economy have been shut down since August. Buyers are understandably cautious, with home sales down 24.5% in 2022. The slowing real estate sector is crippling the Chinese economy. Regarding developer leverage, Evergrande Group is the most indebted developer in the world, with more than $300 billion dollars in liabilities- and they are not the only developer in China dealing with a debt crisis.
How big are the mortgage boycotts? Threats have been made by hundreds of thousands of people, across 328 developments in almost 100 cities. Most people have not acted, but their anger is growing. Property developers have yet to hand over the keys on 884 million square meters (or 48%) of homes they committed to deliver in 2021 and the first half of 2022. That is a huge number, folks!
How long will the patience of those with life savings tied up in stalled developments last? One thing is for certain, mortgage boycotts are spreading across China. Here is an insightful article on the subject- let me know what you think!
~ Brian Kasal- The Leadership Matrix
P.S.- Did you see my last Leadership Matrix post? Inflation is All the Rage- Vol. VII- With Inflationary Issues Like This…
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